Pennsylvania's taxpayer-funded pension crisis explained

Taxpayers are bailing out state pension plans for teachers and for state employees

March 10, 2012|By Steve Esack, Of The Morning Call

A: The state could not afford to pay for the pending rate hikes needed to cover unfunded costs caused by the Legislature's votes and market losses. So then-Gov. Rendell and the Legislature spread the looming increases out over several years. But by spreading out the costs, not enough principal and interest payments were being deposited into the two funds between 2003 and 2012 so costs increased again.

The longer spread pushed the first pension spike to 2012-13. PSERS' employers shares are going up 4 percentage points to 12.4 percent. PSERS contribution rates are scheduled to climb to more than 27 percent between 2019 and 2035 before dropping back down as past-due debt is paid off.

SERS pension payments are scheduled to go up 31/2 percent to 11.5 percent next fiscal year and hit a high of about 26 percent in 2019-20 before gradually dropping as past-due debt is retired.

Q: Did our elected leaders do anything else?

A: In June, Gov. Corbett and the Legislature passed Act 120. But the law only affects new employees hired after July 1, 2011, not the vast majority of workers and retirees. New employees receive 2 percent of their annual final pay as opposed to 21/2 percent upon retirement. Retirement age went up five years to ages 55 and 65 depending on their duties. Vesting time went from five to 10 years.

In his 2012-13 proposed budget, Corbett plans to spend an additional $200 million to cover SERS' higher contribution rate and $380 million for PSERS. That leaves only enough money for 115 new state trooper cadets and nearly nothing extra for classrooms.

Q: Will those fixes help?

A: Not in the short-term. The pension rate hikes are expected to remain in place for the next two decades. Meanwhile, the number of retirees is expected to grow and they will be expecting their pensions. Corbett's budget proposal, unveiled last month, estimates the number of PSERS retirees will rise by nearly 10 percent in 2012-13 and by nearly 24 percent by 2016-17. The budget projects the number of SERS retirees will grow by about 1.8 percent next fiscal year and by nearly 8.8 percent by 2016-17.

Without massive state tax hikes, there's just no money to pay for it all, especially for SERS, which is currently paying out $166 million more per month than it is taking on active employee and agency contributions. The dollar amount is so high because SERS has a retiree-to-employee ratio of 6-to-1.